What is the FDIC?
- The Federal Deposit Insurance Corporation, or FDIC, is an independent government agency whose mission is to protect consumers' money and regulate financial institutions.
- The FDIC insures up to $250,000 per depositer, per insured bank. But it doesn't insure all account types.
- If your bank folds, the FDIC will automatically return your funds back to you so long as the account and funds are insured.
Picking which bank to store your money is a big decision. There are many options to choose from nowadays, with each financial institution offering various benefits and services. But when you store your money in a bank, you want to make sure it's safe.
That's where the FDIC comes in.
To open an account at a FDIC-insured bank means your money is protected, even in the event of a bank failure. "One of the biggest things is to remember that deposit insurance is paid for by the banks and protects depositors in the unlikely event that their bank fails," says Julianne Breitbeil, a senior media relations specialist at the FDIC. "It's not personal insurance for miscellaneous losses."
Here's what to know about the FDIC, how it insures your money, and how to get your money back should a bank shut down.
What is the FDIC?
The FDIC is an independently run agency of the US government. Its role is to protect consumers' deposits in the event a financial institution such as a bank or savings association fails. In doing so, the primary goal of the FDIC is to maintain stability in the economy while boosting public confidence in the US financial system.
While the FDIC operates independently from the federal government, the agency is backed by it. In other words: When you deposit money in a FDIC-insured account, the US government guarantees the money will always be accessible.
Founded in 1933 by Congress, the FDIC was established in response to the staggering number of bank failures during the Great Depression. To date, the FDIC monitors more than 3,500 financial institutions, which is more than half of institutions in America's banking system.
Although the FDIC is the one insuring your money, the funds actually come from the banks that are FDIC-insured. The FDIC will pay insurance to account holders with deposit accounts up to the insured limit.
Important dates in FDIC history
- June 16, 1933: President Franklin D. Roosevelt signed the Banking Act of 1933 - also known as the Glass-Steagall Act - into law, which created the FDIC. The Banking Act was created during the nation's most severe banking crisis, and its goal was to regulate interbank control and restore faith in the country's banking system.
- July 5, 1934: A bank customer by the name of Lydia Lobsiger receives the first FDIC disbursement of $1,250 when her bank, the Fond Du Lac State Bank in East Peoria, had failed.
- October 3, 2008: At the height of the Great Recession, Congress signed off on $700 billion to fund the Troubled Asset Relief Program (TARP). Of that $700 billion, $245 would go toward bolstering the capital of financial institutions. Between 2008 through 2013, 500 US banks failed.
What does the FDIC do?
The FDIC doesn't just insure money - it provides a number of functions to keep banks accountable and consumers' money safe:
- Protects your money: As mentioned, the FDIC offers desposit insurance and protects your money in the event of a bank failure. Sometimes, another bank might act as the "buyer," and buy the bank that is faltering. If a bank doesn't step in and buy the failing bank, the FDIC will handle paying the account holder directly.
- Regulates financial institutions: It also oversees financial institutions for consumer protection, safety, and soundness. The FDIC also ensures that they're compliant with consumer protection laws such as the Truth in Savings Act (TISA), the Expedited Funds Availability Act (EFA Act), and the Electronic Fund Transfer Act (EFTA). The FDIC also promotes fair lending statutes and regulations.
- Resolves failed banks: The FDIC is also the "receiver" of a failed bank, so it sells the bank's assets and settles its debts, including claims for deposits in excess of the insured limit.
- Provides educational resources: The FDIC not only protects consumers, it has a mission to educate them, too. From educational programs like Money Smart and robust consumer assistance resources, to podcasts on consumer protection and banking history and the Electronic Deposit Insurance Estimator (EDIE), which can help you determine how coverage applies to you, there is plenty of material for consumers to explore.
What the FDIC does insure
When you have a deposit account at an FDIC-backed bank - such as a savings, checking, a money market account, or certificate of deposit (CD) - your deposits are backed up to at least $250,000 per bank, per person, per account type. You don't need to sign up for FDIC insurance. If it's an FDIC-backed bank, you're automatically covered up to that amount.
The types of accounts the FDIC insures includes:
- Savings accounts
- Checking accounts
- Money market accounts
- Certificates of deposits (CDs)
- Cashier's checks
- Money orders
Quick tip: Credit unions are different from traditional banks in that the funds are insured by the National Credit Union Share Insurance Fund (NCUSIF). This is an organization that's backed by the National Credit Union Administration (NCUA).
What the FDIC doesn't insure
However, the FDIC doesn't insure all types of accounts like payment apps, investment accounts, or insurance policies, which includes:
- Investments in stocks, bonds, or mutual funds
- Life insurance policies
- Annuities
- Safe deposit boxes or their contents
- Municipal securities
- Money in apps such as PayPal or Venmo
An exception to PayPal is when you add money to your PayPal account using direct deposit. In this case, that money will be eligible for what's known as FDIC pass-through insurance.
When you buy cryptocurrency or add money to your Venmo account using remote capture or direct deposit, funds from your Venmo balance also can be backed up by FDIC pass-through insurance.
Although funds in a payment platform such as Venmo or PayPal aren't typically backed by the FDIC, there might be exceptions, so be sure to comb over the fine print.
How to confirm your bank's FDIC status
To find out if your financial institution is FDIC-insured, you can either ask a bank representative, look for the FDIC sign at your bank, or you can use the FDIC's BankFind tool, explains Breitbell.
This tool lets you access specific information about FDIC-backed banks, such as the current operating status, its website, branch locations, and the regulator to reach out to for more information or help.
How to file a claim with the FDIC
In the event of a bank failure, the FDIC will automatically step in and pay insurance to eligible account holders up to the insurance cap. You don't have to file a claim. This happens automatically, and no action is needed on your part.
Under federal law, the FDIC is required to make these payments as soon as possible. Usually, these payments are made within two business days after a bank shutters, but usually within a business day.
As the bank's customer, your account gets passed off to an FDIC-insured bank, where you'll get a new account. The amount in your account will be the same as the insured balance you had at your previous financial institution, which had failed. Otherwise, you'll receive a check for the balance that was protected.
Note this is only when your financial institution fails. Should you fall victim to identity theft or fraud, that doesn't fall under what the FDIC protects. It's a matter that your bank can handle and help with. And if you lost money through an investment account, insurance policy, or payment app, that's also not something the FDIC handles.
The financial takeaway
The FDIC was created by Congress in 1933 to protect consumers' money should a bank fail. Should the financial institution where you bank close down, the FDIC will give you back your money.
The FDIC will cover up to $250,000 per person, per account no matter where you do banking. Just make sure to check if your financial institution - and account type - is backed by the FDIC. You can easily check to see if the financial institution you do banking with is FDIC-insured by talking to a bank rep or using the FDIC's BankFind tool.